PREM LATA GUPTA, Jaipur V. ACIT, Jaipur

ITA 56/JPR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4916 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 19-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Keywords: Rejection of books of accounts; Depreciation; Retrospective amendment; Revenue expenditure; Capital expenditure
• Section: 201(1); 145

Judgement Text

- VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 56/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 SMT. PREM LATA GUPTA 82/152, SECTOR 115, PRATAP NAGAR, JAIPUR CUKE VS. THE ACIT (OSD) RANGE-7 JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: ACSPG 2092 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI MANISH AGARWAL JKTLO DH VKSJ LS@ REVENUE BY: SHRI R.A. VERMA, ADDL.CIT - DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20/10/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 15 /11/2016 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A)- 3, JAIPUR DATED 14-12-2015 FOR THE ASSES SMENT YEAR 2012-13 RAISING THEREIN FOLLOWING GROUNDS OF APPEAL. 1. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY IN LAW A ND ON THE FACTS IN SUSTAINING THE ACTION OF THE AO IN APPLYING THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, 1961. 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS IN SUSTAI NING THE ADDITION OF RS. 11,98,000/- ON ACCOUNT OF TRADING ADDITION . THE AO HAD MADE ADDITION OF RS. 22,23,000/- UNDER THIS HEAD BY ESTIMATING A GP RATE OF 16% ON ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 2 ENHANCED TURNOVER OF RS. 6.50 CRORES WHEREAS THE AP PELLANT HAD DECLARED A GP RATE OF 13.77% ON A TURNOVER OF RS. 5.94 CRORES. 3. THAT THE LD. CIT(A) HAS ERRED SERIOUSLY IN LAW A ND ON THE FACTS IN SUSTAINING AN ADDITION OF RS. 14,20,581/- ON ACC OUNT OF SECURITY DEPOSIT ACCEPTED BY THE APPELLANT AGAINST DEEP FREEZERS. 4. THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FACT S IN SUSTAINING A DISALLOWANCE OF RS. 2,74,132/- MADE BY THE LD. AO U /S 40(A)(IA) OF THE INCOME TAX ACT, 1961. 2.1 BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS F ILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 7,23,250/-. TH E CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY THE ASSESSMENT U/S 143 (3) WAS COMPLETED BY THE AO AT AN INCOME OF RS. 47,89,272/- ON 30.03.201 5 BY MAKING VARIOUS ADDITIONS / DISALLOWANCES. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL BEFORE THE LD. CIT(A) WHO VIDE ORDER DATED 14.12.20 15 ALLOWED PART RELIEF TO THE ASSESSEE. THEREFORE THE ASSESSEE FILED THE P RESENT APPEAL BEFORE THE ITAT AGITATING THE ADDITIONS / DISALLOWANCES CONFI RMED BY LD. CIT(A). 3.1 AS REGARDS GROUND NO. 1 AND 2, BRIEF FACTS OF T HE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL AND IS ENGAGED IN THE MAN UFACTURING AND TRADING OF ICE CREAM UNDER THE BRAND NAME OMINI. DURING THE YEAR UNDER APPEAL ASSESSEE HAS DECLARED THE TURNOVER OF RS. 5,93,74,507/-. ON EXAMINATION OF THE BOOKS OF ACCOUNTS, THE AO OBSERVED THAT THE ASSESSEE HAS MADE PURCHASES OF MILK IN CASH FOR WHICH NO BILLS WERE A VAILABLE. FURTHER CERTAIN PURCHASES OF MARCH WERE RECORDED IN THE MON TH OF APRIL AND NO ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 3 DAY TO DAY STOCK REGISTER HAS BEEN MAINTAINED AND C ERTAIN CAPITAL EXPENDITURES WERE CHARGED TO PROFIT & LOSS ACCOUNT . THE ASSESSEE ISSUED DEEP FRIDGE TO CERTAIN PARTIES AND TAKEN SECURITY D EPOSITS AGAINST THE COST OF THE SAME HOWEVER IN CERTAIN CASES SECURITY DEPOS IT MORE THAN THE COST HAS BEEN TAKEN AND DISCOUNT COUPONS WERE ISSUED HOW EVER NO SALES WERE RECORDED ON ACCOUNT OF FREE / DISCOUNT COUPONS. IN VIEW OF THE ABOVE DEFECTS, THE AO APPLIED THE PROVISIONS OF SECTION 1 45(3) AND BY ESTIMATING THE TURNOVER AT RS. 6.5 CRORES APPLIED T HE G.P. RATE OF 16% RESULTING INTO THE TRADING ADDITION OF RS. 22,23,00 0/-. 3.2 IN FIRST APPEAL, LD. CIT(A) THOUGH UPHOLD THE A PPLICATION OF SECTION 145(3) YET CONFIRMED THE GP RATE OF 15% ON THE TUR NOVER OF 6.25 CRORES WHICH HAS RESULTED INTO THE CONFIRMATION OF TRADING RESULT OF 11,98,000/- BY OBSERVING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE AO AND SUBMISSION OF THE APPELLANT. THE AO IN HIS ORDER AT PAGE NO.2, PARA A((A TO H) HAS GIVEN DETAI LED REASONS FOR REJECTING THE BOOKS OF ACCOUNTS OF ASSESSEE. AO HAS ALSO GIVEN IN HIS ORDER AT PAGE 6 TO 9, PARA D, THE DETAILED REASON S FOR REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE. I FIND THE REASO N GIVEN BY THE AO ARE VERY VALID AND THEREFORE, UPHOLD THE REJECTION OF BOOKS OF ACCOUNTS. AFTER REJECTION OF BOOKS OF ACCOUNTS AND CONSIDERIN G THE DEFECTS IN THE BOOKS, THE RESULT DECLARED BY THE ASSESSEE CANNOT B E ACCEPTED. THE AO MADE THE ADDITION BY ESTIMATING TURNOVER AT RS. 6. 50 CRORES AS AGAINST 5.94 CRORES AND APPLIED THE GROSS PROFIT RATE OF 16 % AS AGAINST GROSS PROFIT RATE OF 13.77% DECLARED. I FIND THAT THE TUR NOVER ESTIMATED AT 6.50 CRORES APPEARS TO BE ON HIGHER SIDE AND TO MEE T THE ENDS OF JUSTICE, I FIND IT REASONABLE TO ESTIMATE THE SAME AT RS. 6. 25 CRORES. SO FAR AS GROSS PROFIT RATE IS CONCERNED, I FIND THAT GROSS P ROFIT RATE DECLARED AT ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 4 13.77% IS LOWER THAN GROSS PROFIT RATE OF LAST YEAR WHICH WAS 14.70%. I FIND IT REASONABLE TO APPLY A GROSS PROFIT RATE OF 15% ON THE TURNOVER CONFIRMED BY ME AT 6.25 CRORES. THIS COMES TO GROSS PROFIT RATE OF RS. 93.75 LACS AS AGAINST GROSS PROFIT OF 81,77,000/-. AS A RESULT, THE TRADING ADDITION OF RS. 11,98,000/- IS CONFIRMED AND APPELL ANT GETS RESULTANT RELIEF. THIS GROUND IS PARTLY ALLOWED. 3.3 NOW THE ASSESSEE IS BEFORE THE BENCH AND THE LD . AR OF THE ASSESSEE CONTENDED THROUGH HIS WRITTEN SUBMISSION A S UNDER:- IN THIS GROUND OF APPEAL, ASSESSEE HAS CHALLENGED T HE ACTION OF LD. CIT(A) IS CONFIRMING THE REJECTION OF BOOKS OF ACCO UNTS BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND MAKING ESTIMATION BY APPLYING G.P. RATE OF 15% ON THE TURNOVER ESTIMATED AT RS. 6 .25 CRORES AS AGAINST THE G.P. RATE OF 13.77% DECLARED ON THE TURNOVER OF RS. 5.93 CRORES. IN THIS REGARD, IT IS SUBMITTED THAT FOR THE YEAR U NDER CONSIDERATION, ASSESSEE HAD ATTAINED A TURNOVER AT RS.5,93,74,507/ - AND HAD EARNED GP OF RS. 81,79,649/-, RESULTING INTO GP RATE OF 13.77%. HOWE VER, LD. AO REJECTED THE BOOKS OF ACCOUNTS FOR THE REASONS MENTIONED AT PARA 3 PAGE 2-3 OF ASSESSMENT ORDER AND ESTIMATED THE TURNOVER AT RS.6.50 CRORES AND APPLIED GP RATE OF 16% THEREON RESULTING INTO ADDITION OF RS. 22,23,00 0/-, WHICH WAS REDUCED BY LD. CIT(A) BY ESTIMATING TURNOVER AT RS.6.25 CRORES AND FURTHER REDUCING GP RATE TO 15% RESULTING INTO RELIEF OF RS.10,25,000/- . HOWEVER, LD. CIT(A) UPHELD THE REJECTION OF BOOKS. REASONS FOR REJECTION OF BOOKS OF ACCOUNTS ARE DEAL T WITH IN DETAIL HEREUNDER: A) MOST OF THE PAYMENTS FOR MILK ARE IN CASH : MILKMEN ARE THE PERSONS OF VILLAGE BACKGROUND AND ARE ILLITERATES, AND DO N OT HAVE MUCH RELIANCE OVER BANKING SYSTEM AND HENCE THEY DO NOT ACCEPT PAYMENT THROUGH CHEQUES. EVEN SUB RULE E TO RULE 6DD COVERS PAYMENT MADE FOR DAIR Y PRODUCTS AND ACCORDINGLY PAYMENTS MADE TO MILKMEN IN CASH IS IN ACCORDANCE WITH LAW AND WOULD NOT ATTRACT ANY PENAL CONSEQUENCES UNDER INCO ME TAX ACT. THUS, INVOKING THE PROVISIONS OF SECTION 145(3) ON THIS G ROUND IS NOT SUSTAINABLE. FURTHER, NO EVIDENCE WAS BROUGHT ON RECORD TO JUSTI FY THAT BOOKING OF MILK HAS BEEN INFLATED. B) SINCE NO BILLS FOR MILK PURCHASED ARE BEING ISSUED BY THE SUPPLIER THEREFORE, VERIFICATION IS NOT POSSIBLE: AS STATED HEREINABOVE THE MILKMEN ARE ILLITERATES AND EARN VERY LITTLE LIVELIHOOD AND THE Y DO NOT MAINTAIN ANY BOOKS NEITHER ISSUE ANY BILLS AND THIS A COMMON PRACTICE PREVAILING EVERYWHERE THAT MILKMEN MAINTAIN QUANTITY OF MILK SUPPLIED IN THEIR POCKET DIARY AND AT THE ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 5 END OF EVERY MONTH THEY CHARGE AS PER QUANTITY SOLD . THEREFORE, AGAIN THIS FACTOR CANNOT BE TAKEN ADVERSELY TO APPLY THE PROVI SIONS OF SECTION 145(3). C) VARIATION BETWEEN THE DETAILS MENTIONED IN MANUAL R EGISTER AND COMPUTER RECORDS: IN THIS REGARD, LD. AO OBSERVED VARIATIONS IN DATES ON WHICH ENTRIES ARE PASSED IN CASH BOOK AND THAT IN M ANUAL REGISTER IS MAINTAINED BY SECURITY GUARD. IN THIS REGARD, AO HA D POINTED OUT A PAYMENT, WHICH WAS APPEARING IN CASH BOOK ON 10.04.2011 WHER EAS IN REGISTER ON 18.04.2011. IT IS TO BE NOTED HERE THAT MANUAL REGI STER MAINTAINED BY GUARD IS IN RESPECT OF QUANTITY OF MILK SUPPLIED BY MILKMEN. HOWEVER, IT IS BUT OBVIOUS THAT PAYMENT TO THEM WOULD BE MADE BY ACCOUNTING ST AFF, THUS ENTRY WOULD BE MADE BY THEM IN CASH BOOK AS SOON AS THE PAYMENT IS MADE. HOWEVER, GUARD WOULD RECORD THE SAME AFTER GETTING INTIMATION REGA RDING PAYMENT FROM ACCOUNTING STAFF JUST FOR MEMORANDUM POINT OF VIEW THAT PAYMENTS TILL A PARTICULAR DATE HAVE BEEN CLEARED. THUS, THIS REASO N FOR REJECTION OF BOOKS ALSO DOES NOT HOLD GOOD. D) NO DAY TO DAY RAW MATERIAL CONSUMPTION REGISTER WAS MAINTAINED: THE ASSESSEE HAS TO DEAL WITH A LARGE NUMBER OF RAW MATERIALS FOR MANUFACTURING OF ICE CREAMS. MAJOR ITEMS OF RAW MAT ERIAL ARE MILK, SKIMMED MILK POWDER, VEGETABLE OIL, SUGAR ETC. WHEREAS SMAL L ITEMS ARE HUNDREDS IN NUMBER AND VARIETIES. FURTHER, DETAILS IN RESPECT OF CONSUMPTION OF THESE ITEMS WAS MAINTAINED BY ASSESSEE TO RECORD OPENING STOCK AVAILABLE AT BEGINNING OF EVERY MONTH, WHEREIN PURCHASES DURING THE MONTH ARE ADDED AND AT THE END OF EVERY MONTH THE PHYSICAL VERIFICATION IS TAKEN AND ACCORDINGLY MONTHLY CONSUMPTION WAS BEING WORKED OUT. EVEN, IN THE CASE OF SMALL ITEMS THE APPELLANT USED TO HAVE PRACTICE OF WORKING OUT CONSUMPTION. SINCE THE NUMBER OF ITEMS USED AS RAW MATERIAL, PACKING ITEMS BEING LARGE IN NUMBER WITHOUT THERE BEING ANY SIGNIFICANT VALUE, MAINTENA NCE OF DAY TO DAY CONSUMPTION WAS NEITHER PRACTICABLE NOR FEASIBLE. T HE LD. AO WITHOUT PROPERLY APPRECIATING THE SYSTEM BEING FOLLOWED BY THE ASSESSEE TOOK THE STATEMENT OF THE ASSESSEE AS UNABLE TO MAINTAIN DAY TO DAY CONSUMPTION ADVERSELY. THEREFORE, THIS ALLEGATION IS NOT CORREC T E) PURCHASES OF MILK FOR MARCH 2011 STOOD DEBITED IN T HE MONTH OF APRIL, 2011: AS PER SYSTEM BEING FOLLOWED BY THE APPELLANT SINCE LAST SO MANY YEARS THE APPELLANT USE TO DEBIT THE MILK PURCHASED IN A MONTH IN THE NEXT MONTH AS THE MONTHLY ACCOUNT OF EVERY MONTH IS SETT LED IN THE FIRST WEEK OF NEXT MONTH. THE LD. AO HAS ONLY CITED EXAMPLE FOR MILK P URCHASED FOR THE MONTH OF MARCH, 2011 AS HE SAYS THAT MILK PURCHASED IN MARCH , 2011 WAS ACCOUNTED FOR IN APRIL, 2011 BUT AT THE SAME TIME FORGOT TO C ONSIDER THAT MILK PURCHASED IN MARCH, 2012 WAS ACCOUNTED FOR IN APRIL, 2012. AS PER ALLEGATION OF LD. AO, MILK PURCHASES FOR MARCH, 2011 FOR RS.4,44,735/- (1 5323 LITRES) WAS WRONGLY CHARGED AS EXPENDITURE FOR THE YEAR UNDER CONSIDERA TION, HOWEVER LD. AO FAILED TO CONSIDER THAT THE ASSESSEE HAS NOT DEBITE D MILK PURCHASES FOR RS.2,12,076/- (FOR 7740 LITRES OF MILK) MADE IN THE MONTH OF MARCH, 2012 IN ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 6 THE CAPTIONED ASSESSMENT YEAR AND HENCE THE EFFECT ON INCOME GETS NULLIFIED SUBSEQUENTLY. SINCE THIS WAS A REGULAR PRACTICE FOL LOWED BY ASSESSEE, THE SAME DESERVED TO BE ACCEPTED AS EVENTUALLY EFFECT OF ONE MONTHS CHARGES IS COMPENSATED WITH THE EXPENDITURE FOR NEXT YEAR. . IN THIS REGARD, RELIANCE IS PLACED ON THE JUDGMENT OF HONBLE ITAT, AHMEDABAD C BENCH RENDERED IN THE CASE OF ITO, WAPI, WARD 4 V/S SANJAY SINGH SURENDRA SINGH IN ITA NO. 1734/ASHD/2010 WHEREIN THE HONBLE BENCH OF ITAT ALLOWED THE CLAIM OF THE ASSESSEE FOR ELECTRICITY CHARGES FOR WHICH THE ASSESSEE USED TO CHARGE ON THE BASIS OF B ILLS RECEIVED AND DISALLOWANCE WAS MADE BY THE LD. AO BY TREATING THE ELECTRICITY BILL FOR LAST MONTH OF THE ACCOUNTING YEAR AS PERTAINING TO THAT YEAR. THE HONBLE ITAT CONSIDERED THAT THIS WAS A CONSISTENT PRACTICE OF T HE ASSESSEE AND HENCE CLAIM WAS TO BE ALLOWED. F) DEPOSITS FOR DEEP FREEZERS INDICATED THAT APPELLANT USED NOT TO RECORD SALE OF ICE CREAM IN THE GARB OF FREE COUPONS TO TH OSE PARTIES FROM WHOM THE DEPOSIT RECEIVED WAS MORE THAN COST OF DEEP FREEZER : IN THIS REGARD, IT SUBMITTED THAT AS PER USUAL PRACTICE BEING FOLLOWED BY ALL ICE CREAM MANUFACTURERS SECURITY DEPOSIT IS ALWAYS CHARGED FR OM DEALER / DISTRIBUTORS AGAINST SUPPLY OF DEEP FREEZERS TO SECURE ITS INVES TMENT BUT IT IS NEVER MORE THAN COST OF DEEP FREEZER. THE ASSESSEE IS RUNNING BUSINESS IN COMPLETELY COMPETITIVE MARKET WHEREIN SIMILAR TYPES OF GOODS A RE BEING MANUFACTURED AND SOLD BY LARGE NUMBER OF MANUFACTURERS AND IN SU CH SET UP WE CANNOT EVEN THINK THAT THE DEALERS / DISTRIBUTORS WILL AGREE TO PAY MORE SECURITY DEPOSIT THAN THE COST OF DEEP FREEZER AS HAPPENS IN MONOPOL Y SET UP WHERE ALL THE CONDITIONS ARE BOUND TO BE ACCEPTED BY THE DEALERS / DISTRIBUTORS. FURTHER, THE AMOUNT OF SECURITY IS DECIDED AS PER MUTUAL UNDERSTANDING OF ASSESSEE AND DEALERS/ DISTRIBUTORS DEPENDING UPON F ACTS AND CIRCUMSTANCES OF EACH CASE AND NOBODY ELSE CAN DECIDE AS TO WHAT IS A REASONABLE AMOUNT TO BE CHARGED. IT IS FURTHER SUBMITTED THAT IS FREEZER IS RETURNED WITHIN 5 YEARS, THE SECURITY GETS REFUNDED AND IF SECURITY IS FORFEITED PURSUANT TO NON RETURN OF FREEZERS, THE AMOUNT FORFEITED GETS REDUCED FROM BL OCK OF ASSET. THUS, IN BOTH THE CASES, EFFECT OF SECURITY CHARGED IN EXCESS GET S NULLIFIED. IN FACT, IN VERY FEW CASES ASSESSEE HAD TAKEN SEC URITY DEPOSIT OF AN AMOUNT MORE THAN COST OF DEEP FREEZERS WHEREIN THE DEALER / DISTRIBUTOR AGREED TO GIVE DEPOSIT WITH THE CONDITION OF RECEIVING COUPONS ENA BLING THEM TO ISSUE GOODS WITHOUT COST. THE LD. AO HAS ALLEGED THAT THE GOODS SUPPLIED AGAINST THESE FREE COUPONS HAS NOT BEEN RECOGNIZED BY THE ASSESSE E AS SALES. HERE LD. AO FAILED TO APPRECIATE THAT THESE FREE COUPONS AS THE NAME ITSELF SUGGESTS ARE GIVEN AS MARKETING CAMPAIGN WHICH CANNOT BE TAKEN A S PART OF SALES BY ANY STRETCH OF IMAGINATION. THEREFORE, THIS ALLEGATION OF THE LD. AO IS ALSO WITHOUT ANY BASIS. ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 7 G) CERTAIN CAPITAL EXPENDITURE HAVE BEEN DEBITED IN RE VENUE HEAD: THE LD. AO HAS DOUBTED PAYMENT OF FREIGHT OF RS.23,950/ - & RS.8,000/- ON DEEP FREEZERS AND PURCHASE OF UPS FOR RS.6,663/- AND COM PRESSORS FOR RS.9,699/- AND HAS CONSIDERED THE SAME AS CAPITAL EXPENDITURE IN PLACE OF REVENUE EXPENDITURE. IN THIS REGARD, IT IS SUBMITTED THAT S INCE NO NEW ASSET HAS BEEN CREATED PURSUANT TO EITHER FREIGHT CHARGES OR PURCH ASE OF UPS AND COMPRESSORS, THUS THE SAME HAVE BEEN CLAIMED AS REV ENUE EXPENSES AND SUBSEQUENTLY THE SAME HAVE BEEN ALLOWED BY LD. CIT( A). EVEN OTHERWISE WRONG CLASSIFICATION OF A PARTICULA R ITEM OF REVENUE/CAPITAL CANNOT BE HELD A REASON FOR REJECTING BOOKS AND ACC OUNTS. H) MISMATCH IN QUANTITY OF DEEP FREEZERS PURCHASED AND SUPPLIED TO DEALERS / DISTRIBUTORS: IT WAS POINTED BY LD. AO THAT FOR THE YEAR UNDER CONSIDERATION, ASSESSEE HAD SHOWN TO HAVE ISSUED 36 FRIDGES TO VARIOUS PARTIES, WHEREAS FRIDGES PURCHASED DURING THE YEAR WERE 17 ONLY. IN THIS REGARD, IT IS SUBMITTED THAT NOT ONLY NEWLY PURCHAS ED MACHINES BUT ALSO, MACHINES EARLIER ISSUED TO DEALERS AND RETURNED BAC K ARE ALSO ISSUED TO ANOTHER DEALERS/ DISTRIBUTORS. THUS REJECTION OF BO OKS ON THIS ACCOUNT IS NOT CORRECT. I) OPENING AND CLOSING INVENTORY OF VARIOUS MATERIALS WERE PRODUCED BUT IN ABSENCE OF CONSUMPTION RECORDS THE SAME ARE NOT VERIFIABLE: THE LD. AO HAS MADE THIS OBSERVATION WITHOUT PROPERLY APPRE CIATING THE PRACTICAL SITUATION. AS MENTIONED HEREINABOVE THE ASSESSEE AD OPTS BEST POSSIBLE AND SCIENTIFIC METHOD OF MEASURING CONSUMPTION OF VARIO US RAW MATERIALS. FURTHER, LD. AO HAS NOT BROUGHT ANY EVIDENCE TO PROVE THAT A NY EXCESS CONSUMPTION OR DISPROPORTIONATE CONSUMPTION FOR ANY RAW MATERIAL H AS BEEN CLAIMED BY THE APPELLANT. THEREFORE, COMMENTS OF AO ARE MERELY BAS ED ON CONJECTURES AND SURMISES. ON PERUSAL OF ABOVE, YOUR HONOURS WOULD APPRECIATE THAT REASONS ENUMERATED FOR REJECTION BY LD. AO, IT IS ARE EITHE R VERY GENERAL IN NATURE, WITHOUT POINTING OUT ANY SPECIFIC DEFECT OR IN THE NATURE OF MISTAKES/ ACCOUNTING TREATMENT OF A PARTICULAR INCOME /EXPENS E WHICH IS UNAVOIDABLE LOOKING TO THE PECULIAR NATURE OF BUSINESS CARRIED ON BY ASSESSEE. IT IS WELL KNOWN FACT THAT IN AN INDUSTRY LIKE MANU FACTURING ICE CREAMS, A NUMBER OF RAW INGREDIENTS ARE REQUIRED AND MAINTA INING STOCK OF ALL THE ITEMS ON DAY TO DAY BASIS IS NOT POSSIBLE. FURTHER, IT IS A SETTLED LAW, THE BOOKS OF ACCOUNTS CANNOT BE REJECTED ARBITRARILY, MERELY ON THE BASIS OF PETTY IRREGULAR ITIES OR FOR NON MAINTENANCE OF STOCK REGISTER UNLESS THERE BEING ANY SPECIFIC D EFECTS. IN FACT, IF THE BOOKS OF ACCOUNTS ARE REJECTED, ASSESSEE HAS RIGHT TO KNOW T HE BASIS ON WHICH PROFITS HAVE BEEN CALCULATED THEREAFTER. ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 8 IN THIS REGARD, RELIANCE IS PLACED ON: 134 TAXMANN 384 ASSTT. CIT VS. GENDALAL HAZARILAL & CO. (MP) SECTION 145 OF THE INCOME-TAX ACT, 1961 METHOD OF ACCOUNTING ESTIMATION OF PROFIT ASSESSMENT YEAR 1993-94 WHETHER ASSES SING OFFICER AND APPELLATE AUTHORITY COULD NOT REJECT BOOKS OF ACCOU NT MAINTAINED BY ASSESSEE WHICH WERE SIMILAR TO BOOKS OF PREVIOUS YEARS, ACCE PTED BY DEPARTMENT HELD, YES ST. TERESAS OIL MILLS V. STATE OF KERALA, (1970) 7 6ITR 365, 367-8 (KER) ACCOUNTS REGULARLY MAINTAINED IN THE COURSE OF BUSI NESS HAVE TO BE TAKEN AS CORRECT UNLESS THERE ARE STRONG AND SUFFICIENT REAS ONS TO INDICATE THAT THEY ARE UNRELIABLE. THE DEPARTMENT HAS TO PROVE SATISFACTOR ILY THAT ACCOUNT BOOKS ARE UNRELIABLE, INCORRECT OR INCOMPLETE BEFORE IT CAN R EJECT ACCOUNTS, WHICH MAY BE DONE BY SHOWING THAT IMPORTANT PURCHASES ARE OMI TTED THEREFROM OR PROPER PARTICULARS OR VOUCHERS ARE NOT FORTHCOMING OR THE ACCOUNTS DO NOT INCLUDE ENTRIES RELATING TO A PARTICULAR CLASS OF BUSINESS. REJECTION OF ACCOUNTS SHOULD NOT BE DONE LIGHT-HEARTEDLY. WHETHER INSIGNIFICANT MISTAKES IN THE ACCOUNT BOOK CAN FORM THE BASIS OF REJECTION OF ACCOUNTS HELD NO AJANTA CONSTRUCTION (P) LTD. V/S ACIT 22 TW 606 (JP BENCH) CIT VS. SMT. POONAM RANI REPORTED IN 326 ITR 223 , THE HONBLE DELHI HIGH COURT HAS HELD AS UNDER: REJECTION OF AC COUNTS--FALL IN GROSS PROFIT--NO DEFECTS FOUND IN ACCOUNTS--ABSENCE OF ST OCK REGISTER ALONE NOT A GROUND TO INFER THAT ACCOUNTS INACCURATE OR INCORRE CT--COMMISSIONER (APPEALS) AS WELL AS TRIBUNAL ACCEPTING EXPLANATION OF ASSESSEE FOR FALL IN GROSS PROFIT--FINDINGS OF FACT--INCOME-TAX ACT, 196 1, S. 145(3). HONBLE APEX COURT IN THE CASE OF DHAKESWARI COTTON MILLS LTD., V/S. CIT (1954) 26 ITR 775 , WHEREIN IT HAS BEEN HELD TH AT THE ESTIMATE OF TURNOVER AND FIXATION OF GROSS PROFIT RATE ARE TWO IMPORTANT PARAMETERS WHICH AFFECT THE ASSESSMENT. IF THESE ARE FIXED OR CALCUL ATED IN SUCH A WAY THAT THEY ADVERSELY AFFECT THE ASSESSEES CASE, THEN HE IS EN TITLED TO KNOW THE BASIS AND TO BE GIVEN AN OPPORTUNITY TO REBUT THE SAME. THE R ULE OF LAW ON THIS SUBJECT HAS BEEN WELL SETTLED THAT ESTIMATES FRAMED WITHOUT GIVING THE BASIS FOR THEIR FIXATION OR WITHOUT FURNISHING TO THE ASSESSEE THE MATERIAL ON WHICH THE RATE OF GROSS PROFIT IS ARRIVED AT OR WITHOUT GIVING AN OPP ORTUNITY TO THE ASSESSEE TO REBUT IT ARE BAD. ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 9 IN VIEW OF ABOVE FACTUAL AND LEGAL SCENARIO, IT IS REQUESTED THAT REJECTION OF BOOKS OF ACCOUNTS MAY KINDLY BE HELD A S BAD IN LAW AND BOOK RESULTS SHOWN BY ASSESSEE, DESERVES TO BE ACCEPTED. WITHOUT PREJUDICE TO ABOVE, IT IS SUBMITTED THAT SO FAR AS APPLICATION OF G.P. RATE IS CONCERNED, IT IS SETTLED PRINCIPLE THA T UNLESS CIRCUMSTANCES INDICATE OTHERWISE, PAST HISTORY OF THE CASE IS BES T GUIDE TO DECIDE GP RATE. ACCORDINGLY, AT THE OUTSET, GP RATE OF ASSESSEE FOR LAST 3 YEARS IS REPRODUCED HEREWITH: ASSTT. YEAR TURNOVER (RS. IN LACS) GROSS PROFIT (RS. IN LACS) GP RATE 2010-11 459.39 68.16 14.84% 2011-12 528.12 77.65 14.70% 2012-13 593.75 81.77 13.77% ON PERUSAL OF ABOVE, IT IS EVIDENT THAT DURING THE YEAR UNDER CONSIDERATION, TURNOVER OF ASSESSEE HAS INCREASED B Y 12.43% AS COMPARED TO IMMEDIATELY PRECEDING YEAR AND SIMULTANEOUSLY GP RA TE HAS BEEN RECORDED AT 13.77%, I.E. REDUCED NOMINALLY, WHICH IS ATTRIBUTAB LE TO INCREASE IN TURNOVER (AS PROFIT IN MONETARY TERMS HAS INCREASED) AND FUR THER TO INCREASE IN DIRECT COSTS WITHOUT ANY CONSEQUENTIAL INCREASE IN SALE PR ICE. FURTHER, LD. AO OBSERVED THAT DUE TO WRONG ACCOUNTI NG OF MILK, EXPENDITURE HAS GONE UP BY RS. 4,44,735/- AND HENCE ADDITION HAS TO BE FOR AT LEAST THIS AMOUNT (PARA E ON PAGE 8 OF HIS ORDER ), WHICH IS NOT CORRECT AS LD. AO FAILED TO CONSIDER THAT THE WAY MILK PURCHA SED IN MARCH 2011 WAS ACCOUNTED FOR IN F.Y.2011-12, SIMILARLY MILK PURCHA SED IN MARCH 2012 WAS ACCOUNTED FOR IN PREVIOUS YEAR 2012-13, RESULTING I NTO LOWER BOOKING OF EXPENDITURE BY A SUM OF RS. 2,12,076/-. IN OTHER WO RDS, THE SAME HAS TO BE REDUCED FROM RS.4,44,735/- AND ADDITION SHOULD NOT EXCEED RS. 2,32,659/-. FURTHER, ASSESSEE IS AN EXCISABLE UNIT AND HAS DECL ARED A TURNOVER OF RS. 5,93,59,027/- IN ITS RETURNS (APB 18-23) WHICH MATCHES WITH TURNOVER DECLARED IN AUDITED ACCOUNTS AND HENCE THERE IS NO REASON TO ENHANCE THE SALES MERELY ON THE BASIS OF ASSUMPTIONS. EVEN THE DEFECTS ALLEGED BY THE LD. AO CONTAINED AN ESTIMATED SUPPRESSION OF AROUND RS. 7 LACS IN SALES WHEREAS TURNOVER HAS BEEN ENHANCED BY RS. 56 LACS FOR ESTIM ATING THE INCOME. IN FACT, LD. CIT (A) ONLY REDUCED THE TURNOVER TO RS. 6.25 C RORE, WITHOUT PROPERLY APPRECIATING THE FACTS, WHICH IS NOT CORRECT WHEN T HE ASSESSEE HAS MAINTAINED COMPLETE EXCISE RECORDS, ALLEGATION AND ESTIMATION OF SALES IS PATENTLY WRONG. IN THIS REGARD RELIANCE IS FURTHER PLACED ON THE FO LLOWING: THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MALANI RAMJIVAN JAGGANNATH VS. ACIT REPORTED IN 316 ITR 120 IT HAS BEEN HELD THAT MERELY LOWER G.P. RATE OR MERE DEVIATION IN G.P., TRADING ADDITION WAS NOT JUSTIFIED . ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 10 HONBLE RAJASTHAN HIGH COURT IN THE CASE OF M/S GOTAN LIME KHANIJ UDYOG REPORTED IN 256 ITR 243 HAS HELD THAT REJECTION O F BOOKS OF ACCOUNTS NEED NOT NECESSARILY LEAD TO ANY ADDITION TO THE IN COME. HONBLE GAUHATI HIGH COURT IN THE CASE OF ALUMINUM INDUSTRIES (P) LTD. V. CIT ITR NO. 12/1990, OBSERVED THAT, A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR WOULD NOT JUSTIFY ANY ADDITION. THE MERE FACT THAT THE PERCEN TAGE OF LOSS OF GROSS PROFIT IS HIGH OR LOW IN PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO AN INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT IS NEITHER A CIRCUMSTANCE OR MATERIAL TO JUSTIFY ADDITION OF PROFITS. IT WAS FURTHER HELD IN THE CASE OF MADNANI CONSTRUCTION V. COMMISSIONER OF INCOME-TAX..[2008] 296 ITR 45, THAT THE INCOME TAX OFFICER IS NOT FETTERED BY ANY TECHNICAL RULES OF E VIDENCE AND PLEADINGS, AND HE IS ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPT ABLE IN EVIDENCE IN A COURT OF LAW, BUT WHILE MAKING THE ASSESSMENT UNDER THE P RINCIPLES OF BEST-JUDGMENT, THE ITO IS NOT ENTITLED TO MAKE A PURE GUESS WITHOU T REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE MORE THAN A MERE SUSPICI ON TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR, IN ITS ELF CANNOT BE A GROUND THAT GROSS PROFITS WERE LOW AND COMPARED UNFAVORABLE WIT H THOSE OF OTHERS. IT IS THEREFORE, PRAYED THAT, IF AT ALL, GP RATE SH OULD BE DIRECTED TO APPLIED ON THE BASIS OF PAST HISTORY OF THE ASSESSE E. 3.4 ON THE OTHER HAND THE LD. DR RELIED ON THE ORDE RS OF THE AUTHORITIES BELOW AND CONTENDED THAT THE AO HAS SPECIFICALLY PO INTED OUT THE DEFICIENCIES IN THE BOOKS OF ACCOUNTS OF THE ASSESS EE. THEREFORE THE LD. CIT(A) HAS RIGHTLY CONFIRMED THE ADDITION WHICH DES ERVES TO BE UPHELD. 3.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED FROM THE RECORDS T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO HAS EXAMINED THE BOOK S OF ACCOUNTS AND FOUND CERTAIN DEFICIENCIES THEREIN WHICH THOUGH HAD REPLIED BY THE ASSESSEE YET IN THE ABSENCE OF THE DAY TO DAY STOC K REGISTER THE ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 11 CONSUMPTION OF MILK AND PRODUCTION OF ICE CREAM IS NOT VERIFIABLE. THE ASSESSEE HAS ALSO ADMITTED THAT THE PURCHASES MADE OF MILK IN THE MONTH OF MARCH HAVE BEEN RECORDED IN THE MONTH OF APRIL A ND THIS PRACTICE HAS BEEN FOLLOWED REGULARLY. THE MILK HAS BEEN PURCHASE D IN CASH AND IN MOST OF THE CASES NO INVOICES WERE AVAILABLE THEREFORE T HE AFFAIRS OF THE ASSESSEE ARE NOT OPEN FOR VERIFICATION. UNDER THESE CIRCUMSTANCES THE AO HAS RIGHTLY INVOKED THE PROVISION OF SECTION 145(3) OF THE ACT WHICH IS UPHELD. AS REGARDS THE ESTIMATION OF INCOME, IT IS NOTED FROM THE RECORDS THAT THE ASSESSEE HAS DECLARED THE TOTAL TURNOVER O F RS. 5.93 CRORES WHICH WAS ESTIMATED BY THE AO AT RS. 6.5 CRORES AND REDUC ED BY LD. CIT(A) TO RS. 6.25 CRORES. THE ESTIMATION MADE BY AO IS SOLEL Y FOR THE REASON THAT CERTAIN SALES AGAINST FREE COUPONS ISSUED IS NOT RE CORDED FOR WHICH IT IS EXPLAINED THAT THE FREE COUPONS WERE ISSUED AS A MA RKETING STRATEGY AND FREE DISTRIBUTION OF THE MATERIAL COULD NOT BE FORM ING PART OF THE SALES AND THE CORRESPONDING RECEIPTS FROM THE DEALERS AS SECU RITY DEPOSITS IS SEPARATELY KEPT UNDER THE HEAD SECURITY DEPOSITS. THEREFORE THERE IS NO OCCASION FOR RECORDING THE SAME UNDER THE HEAD SAL ES. UNDER THESE CIRCUMSTANCES I AM OF THE VIEW THAT THE TURNOVER DE CLARED BY THE ASSESSEE SHOULD NOT BE DISTURBED MORE PARTICULARLY WHEN THE ASSESSEES RECORD ARE SUBJECT TO EXAMINATION BY CENTRAL EXCISE AND VAT AU THORITIES WHO HAVE ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 12 NOT DOUBTED THE TURNOVER DECLARED IN THE YEAR UNDER APPEAL. AS REGARDS THE APPLICATION OF THE GP RATE, I FIND THAT THE TUR NOVER OF THE ASSESSEE HAS BEEN ON INCREASING TREND AND IT IS AN ESTABLISHED P RINCIPAL OF MARKETING THAT THE TURNOVER WOULD BE INCREASED BY LOWERING TH E PROFIT MARGINS. IN THIS CASE CERTAIN DEFICIENCIES WERE POINTED OUT BY THE AO INCLUDING THE RECORDING OF PURCHASES OF THE MONTH OF MARCH IN APR IL FOR WHICH IT WAS EXPLAINED THAT SAME PROCESS IS APPLIED EVERY YEAR A ND IF THE EFFECT OF THE PURCHASES RECORDED IN THE MONTH OF APRIL FOR THE PU RCHASES MADE IN MONTH OF MARCH OF PRECEDING ASSESSMENT YEAR VIS--V IS THE PURCHASES OF THE MONTH OF MARCH OF THE YEAR UNDER APPEAL RECORDE D IN SUBSEQUENT ASSESSMENT YEAR IS CONSIDERED THE RESULTANT FIGURE IS WORKED OUT AT RS. 2,32,659/- BY WHICH AT THE MOST THE PROFIT IS DEFLA TED. LOOKING TO THESE FACTS AND CIRCUMSTANCES OF THE CASE, IN MY CONSIDE RED VIEW THE GP OF PRECEDING ASSESSMENT YEAR IS TO BE APPLIED ON THE D ECLARED TURNOVER OF RS. 5,93,59,027/- (5,93,59,027X 14.70% = 87,25,776) WHICH HAS RESULTED INTO THE GP OF RS. 87,25,776/- AS AGAINST THE GP DE CLARED AT RS. 81,77,000/- SHOWN BY THE ASSESSEE AND ACCORDINGLY A N ADDITION OF RS. 5,48,776/- ( RS. 87,25,776 MINUS RS. 81,77,000) I S HEREBY CONFIRMED TO COVER UP ALL THE POSSIBLE LEAKAGE OF THE REVENUE AS DISCUSSED ABOVE. ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 13 HENCE GROUND NO. 1 OF THE ASSESSEE IS DISMISSED AND GROUND NO. 2 IS PARTLY ALLOWED. 4.1 AS REGARDS GROUND NO. 3 OF THE ASSESSEE, BRIE F FACTS OF THE CASE ARE THAT THE AO OBSERVED THAT ASSESSEE HAS FORFEITED TH E SECURITY DEPOSITED OF RS. 14,20,581/- WHICH HAS NOT BEEN SHOWN AS INCOME AND ACCORDINGLY THE AO MADE THE ADDITION OF THE SAME. 4.2 IN FIRST APPEAL, THE LD. CIT(A) HAS CONFIRMED THE A CTION OF THE AO BY OBSERVING AS UNDER: - 6.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE AO AND SUBMISSION OF THE APPELLANT. REGARDING THE FORFEITURE OF DEEP FREEZE SECURITY BY THE ASSESSEE, I FIND THAT THIS AMOUNT IS RECEIVED FROM THE DEALER AND OTHER PERSON S TO WHOM THE DISTRIBUTOR SUPPLIES ICE-CREAM. THE ASSESSEE HASNT BROUGHT ANY EVIDENCE TO PROVE THAT THIS SECURITY DEPOSIT FORFEI TED WAS REDUCED FROM WDV OF PLANT AND MACHINERY AND CLAIMED REDUCED DEPR ECIATION IN FACT, THIS IS A FORFEITURE OF SECURITY DEPOSIT RECE IVED IN NORMAL COURSE OF BUSINESS AND THE SAME CANNOT BE CHARACTERIZED AS CA PITAL RECEIPT. ACCORDINGLY, THE ACTION OF THE AO IS CONFIRMED. 4.3 NOW, THE ASSESSEE IS BEFORE THIS BENCH AND THE LD. AR OF THE ASSESSEE CONTENDED THROUGH HIS WRITTEN SUBMISSION A S UNDER:- 'IN THIS GROUND OF APPEAL, ASSESSEE HAS CHALLENGED THE ACTION OF LD. AO IN CONFIRMING ADDITION OF RS.14,20,581/- MADE BY LD . AO ON ACCOUNT OF FORFEITED SECURITY DEPOSITS RECEIVED FROM DEALERS O N ACCOUNT OF DEEP FRIDGES GIVEN TO THEM. IN THIS REGARD, IT IS SUBMITTED THAT WHENEVER ANY D EEP FREEZER IS PURCHASED BY ASSESSEE, IT IS DEBITED TO DEEP FREEZE R ACCOUNT TREATING THE SAME AS ASSET OF THE APPELLANT AND WHATEVER SECURITY DEP OSIT IS RECEIVED FROM THE DEALER/ DISTRIBUTOR THE SAME IS CREDITED UNDER THE HEAD SECURITY FOR DEEP FREEZER ACCOUNT. NORMALLY, THE DEEP FREEZER IS GIVE N TO DEALERS FOR A PERIOD OF FIVE YEARS WITH THE UNDERSTANDING THAT IF THE DEALE R/ DISTRIBUTOR RETURNS THE ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 14 DEEP FREEZER BACK, SECURITY DEPOSIT SHALL BE REFUND ED WITHOUT CHARGING ANY COST AND WITHOUT ANY INTEREST APPRECIATION AND IN C ASE THE FREEZER IS NOT RETURNED, SECURITY MONEY SHALL STAND FORFEITED AFTE R LAPSE OF 5 YEARS AND AT THAT TIME THE SAME WOULD BE ACCOUNTED FOR IN BOOKS OF AC COUNTS AS SALE TO DEALER / DISTRIBUTOR AND ACCORDINGLY REDUCED FROM THE COST O F BLOCK OF DEEP FREEZER. TO RECORD THIS SALE AMOUNT LYING IN SECURITY DEPOSI T ACCOUNT OF RESPECTIVE DEALER/ DISTRIBUTOR IS DEBITED BY CREDITING THE DEE P FREEZER ACCOUNT, WHICH WOULD RESULT IN CANCELLATION OF SECURITY DEPOSIT AN D EQUIVALENT AMOUNT IS REDUCED FROM THE WDV OF DEEP FREEZERS. HOWEVER, LD. AO PROCEEDED TO MAKE ADDITION ON THE WRONG ALLEGATION THAT SECURITY DEPO SIT RECEIVED FROM DEALERS/ DISTRIBUTORS, WHICH WAS SUBSEQUENTLY FORFEITED HAS NOT BEEN SHOWN AS SALES BY OBSERVING AS UNDER (PAGE 11 PARA 1 OF ORDER) : THOUGH IN THE ABOVE REPLY THE ASSESSEE HAS ADMITTED THAT ON FORFEITURE THE ASSESSEE MAKES ENTRIES IN HER BOOKS SHOWING THI S TRANSACTION AS IF SHE HAD SOLD THE DEPRECIATED DEEP FREEZE TO THE DEALER AGAI NST THE SECURITIES DEPOSIT BEING ITS SALE CONSIDERATION HOWEVER NO SUCH SALE H AS BEEN BOOKED. THE ACTION OF LD. AO WAS CONFIRMED BY LD. CIT(A) WI THOUT GIVING ANY INDEPENDENT FINDING. IN THIS REGARD, IT IS SUBMITTED THAT OBSERVATION OF LD. AO FOR MAKING ADDITION IS COMPLETELY INCORRECT ON LAW AS WELL AS ON FACTS AS THE DEEP FRIDGES ARE REFLECTED IN PLANT & MACHINERY BEING PART OF BLOCK OF ASSET, ACCORDINGLY FORFEITED AMOUNT OF RS.14,18,501/- HAS BEEN REDUCED FROM THE COST OF BLOCK OF ASSET. HOWEVER, SINCE AS PER PROVISIONS OF SECTION 50 OF THE INCOME TAX ACT, TAXABILITY OF CAPITAL GAIN IN CASE OF DEPR ECIABLE ASSESSEE WOULD ARISE ONLY UNDER TWO CIRCUMSTANCES:- (I) EITHER SALE CONSIDERATION EXCEEDS AGGREGATE OF : A. EXPENSES IN CONNECTION WITH TRANSFER B. OPENING WDV OF BLOCK OF ASSETS C. ACTUAL COST OF ANY ASSET ACQUIRED DURING THE PREVIO US YEAR OR (II) BLOCK OF ASSETS CEASES TO EXIST AS IN THE INSTANT CASE, BLOCK OF ASSET HAS CONTINUE D TO EXIST, AMOUNT FORFEITED DURING THE YEAR STOOD REDUCED FROM BLOCK OF ASSETS AND DEPRECIABLY HAS BEEN CLAIMED ON REMAINING AMOUNT, WHICH IS AS P ER LAW. THE SAID FACTS IS VERIFIABLE FROM NOTES ON ACCOUNTS ATTACHED WITH A UDIT REPORT ALSO (APB 99), WHEREIN IT IS MENTIONED THAT THE PLANT & MACHINER Y OF RS.14,18,501/- WAS WRITTEN OFF AS THE DEEP FRIDGE SUPPLIED TO THE DEALERS COULD NOT BE RECOVERED FROM THEM. THE SAME HAS BEEN ADJUSTED AGA INST DEPOSIT RECEIVED FROM DEALERS. ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 15 IN VIEW OF ABOVE, IT IS SUBMITTED THAT LD. AO FAILE D TO UNDERSTAND THE ACCOUNTING TREATMENT IN RESPECT OF DEEP FREEZERS , WHICH IS FOLLOWED BY ALL THE ICE CREAM MANUFACTURERS THROUGHOUT THE COUNTRY. IT IS BEYOND UNDERSTANDING AS TO HOW THE LD. AO HAS CONSIDERED THE AMOUNT OF S ECURITY DEPOSIT FORFEITED AS INCOME OF THE APPELLANT WHEN THE ASSESSEE HAS ALREA DY REDUCED THE SAME FROM THE COST OF ASSETS AND ACCORDINGLY CLAIMED LOWER DE PRECIATION, FURTHER ADDITION OF SUCH SALE IS ILLEGAL. IN VIEW OF ABOVE, IT IS REQUESTED THAT ADDITION MAD E ON THIS ACCOUNT DESERVES TO BE DELETED. 4.4 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 4.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE ADDITI ON OF RS. 14,20,581/- WAS MADE FOR THE REASON THAT THIS AMOUNT WAS FORFEITED OUT OF THE SECURITY DEPOSIT RECEIVED AGAINST THE DEEP FREEZERS GIVEN TO THE DEALERS / DISTRIBUTORS BUT THE SAME IS NOT DECLARED AS INCOME IN THE PROFIT & LOSS ACCOUNT. DURING THE COURSE OF HEARING THE LD. AR OF THE ASSESSEE REFERRED TO THE COMPUTATION OF TOTAL INCOME PLACED AT PAGE 8 2-83 OF THE ASSESSEE'S PAPER BOOK WHEREIN DEPRECIATION CHART IS SHOWING A SUM OF RS. 14,18,501/- AS SALES AND WAS REDUCED FROM THE WRIT TEN DOWN VALUE OF PLANT & MACHINERY. IT IS CONTENDED THAT THE ASSESSE E HAS CLAIMED DEPRECIATION ON SUCH DEEP FREEZERS AND THE AMOUNT O F SECURITY FORFEITED HAS BEEN REDUCED FROM THE WRITTEN DOWN VALUE AND TH E DEPRECIATION WAS CLAIMED ON SUCH REDUCED VALUE. THEREFORE, THERE IS NO OCCASION TO DECLARE SUCH RECEIPTS SEPARATELY IN THE PROFIT & LOSS ACCOU NT. AFTER VERIFICATION ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 16 OF THESE FACTS FROM THE ASSESSEE'S PAPER BOOK PAGE 99, IT IS FOUND THAT AS AGAINST THE TOTAL AMOUNT OF RS. 14,20,581/-(AS PER AOS ORDER PAGE 11) ASSESSEE HAS REDUCED THE VALUE OF PLANT & MACHINERY BY RS. 14,18,501/- THEREFORE THE SAME IS HEREBY DIRECTED TO BE DELETED AND THE BALANCE AMOUNT OF RS. 2,080/- IS HEREBY UPHELD. THUS THE G ROUND NO. 3 OF THE ASSESSEE IS PARTLY ALLOWED. 5.1 AS REGARDS GROUND NO. 4 OF THE ASSESSEE, BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HAS PAID INTEREST OF RS. 2,74,132/- T O RELIGARE FINANCE LTD. ON WHICH NO TAX WAS DEDUCTED THOUGH A CERTIFICATE F ROM CA UNDER FORM 26A WAS SUBMITTED BEFORE THE AO IN VIEW OF THE AMEN DED PROVISO OF SECTION 40(A)(IA) INSERTED BY FINANCE ACT, 2012 W.E .F. 01.07.2012. THEREFORE, THE CLAIM OF INTEREST OF RS. 2,74,132/- WAS DISALLOWED BY THE AO AND ADDED BACK TO THE INCOME OF THE ASSESSEE WH ICH RESULTED INTO AN ADDITION OF RS. 2,74,132/-TO THE INCOME OF THE ASSE SSEE. 5.2 IN FIRST APPEAL, THE LD. CIT(A) HAS NOT ALLOWED THE CLAIM OF THE ASSESSEE BY OBSERVING AS UNDER:- 8.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF T HE CASE, FINDINGS OF THE AO AND SUBMISSION OF THE APPELLANT. IT IS SEEN THAT THE ASSESSEE HAS NOT DEDUCTED TDS ON INTEREST OF RS. 2, 74,132/- PAID TO RELIGARE FINANCE LTD. THE LD. AR ARGUED THAT W.E.F . A.Y. 2013-14, A PROVISO WAS INSERTED TO SECTION 40(A)(IA) WHICH STA TES THAT ASSESSEE IS NOT DEEMED TO BE ASSESSEE IN DEFAULT IN THE OTHER P ARTY HAS INCLUDED THE SAID AMOUNT IN INCOME AND PAID TAX THEREON BEFORE D UE DATE OF FILING OF RETURN OF INCOME. HE FURNISHED FORM NO. 26A IN SUPP ORT. ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 17 THIS PROVISO WAS INSERTED W.E.F. A.Y. 2013-14 WHERE AS PRESENT A.Y. IS 2012-13. THEREFORE, THE SAME IS NOT APPLICA BLE TO THIS YEAR. ACCORDINGLY, DISALLOWANCE MADE BY AO IS CONFIRMED. THIS GROUND IS DISMISSED. 5.3 BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER BEFORE THIS BENCH AND THE LD. AR OF THE ASSESSEE THROUGH HIS WRITTEN SUBMISSION CONTENDED AS UNDER:- BRIEFLY STATED FACTS IN RESPECT OF THIS GROUND OF A PPEAL ARE THAT DURING THE YEAR UNDER CONSIDERATION, ASSESSEE PAID INTERES T OF RS. 2,74,132 ON LOAN TAKEN FROM M/S. RELIGARE FINANCE LTD. ON WHICH NO T AX WAS DEDUCTED AT SOURCE. ACCORDINGLY, LD. AO ISSUED SHOW CAUSE NOTIC E AS TO WHY THE SAID AMOUNT SHOULD NOT BE DISALLOWED. IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE FURNISHED CERTIFICATE FROM CA IN FORM NO. 26A (APB 26-27) IN ACCORDANCE WITH PROVISO TO SECTION 201(1) R.W. RULE 31ACB, CERTIFYING THAT THE TAXES IN RESPECT OF INTEREST INCOME WERE DULY PAID BY M/S. RELIGARE FINANCE AND ACCORDINGLY SHOULD NOT BE HELD IN DEFAULT FOR T HE SAID AMOUNT. THUS, AO WAS REQUESTED NOT TO DISALLOW THE SAID AMOUNT. HOWEVER, LD. AO REJECTED THE PLEA OF ASSESSEE FOR TWO REASONS: (I) PROVISO TO SECTION 201(1) WAS INSERTED BY FINANCE A CT 2012 W.E.F. 01.07.2012 AND WAS NOT APPLICABLE FOR THE YE AR UNDER CONSIDERATION AND (II) AS PER PROVISIONS OF RULE 31ACB FORM NO. 26A WAS TO BE SUBMITTED TO DGIT (SYSTEMS) OR ANY PERSON AUTHORIZE D BY SUCH DGIT (SYSTEMS). SUBSEQUENTLY, THE DISALLOWANCE WAS CONFIRMED BY LD. CIT(A) AGAIN FOR THE REASON THAT PROVISO WAS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. IN THIS REGARD IT IS SUBMITTED THAT THOUGH THE AMEN DMENT HAS TAKEN PLACE FROM AY 2013-14 HOWEVER, IT IS A BENEFICIAL P ROVISION AND INSERTION OF THE SAME IN THE STATUTE CLEARLY SHOWS THE INTENTION OF THE LEGISLATURE TO GIVE RELIEF IN THE CASE WHERE THE PAYEE HAS PAID THE DUE TAXES, FURTHER DISALLOWANCE IN THE HANDS OF THE PAYER CAUSED TO THE SERIOUS HAR DSHIP. THE INTENTION BEHIND THE INSERTION OF PROVISION OF SECTION 40(A)(IA) WAS TO BROUGHT THOSE PERSONS IN THE TAX NET IN WHOSE CASE NO TDS IS DEDUCTED THOUG H THEY ARE ENJOYING THE TAXABLE INCOME, THUS WHERE THE PAYEE HAS ALREADY PA ID THE DUE TAXES ON THE PAYMENTS ON WHICH NO TDS IS DEDUCTED BY PAYER, THER E REMAINED NO REASON TO ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 18 MAKE DISALLOWANCE IN THE HANDS OF THE PAYER. THE HO NBLE APEX COURT IN THE CASE OF CIT (CENTRAL-1) DELHI VS. VATIKA TOWNSHIP P VT. LTD. REPORTED IN 367 ITR 466 (RELEVANT PARA 30-37) HAS HELD THAT THE BEN EFICIAL AMENDMENT WHICH EFFECT THE PUBLIC GENERALLY AND WHERE TO CONFER SUC H BENEFIT APPEARS TO HAVE BEEN THE LEGISLATORS OBJECT, THEN THE PRESUMPTION W OULD BE THAT SUCH A LEGISLATION, GIVING IT A PURPOSIVE CONSTRUCTION, WO ULD WARRANT IT TO BE GIVEN RETROSPECTIVE EFFECT. RECENTLY, THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD. REPORTED IN 234 TAXMAN 825 (APB 100-109) HAS HELD THAT THE SECOND PROVISO TO SECTION 40(A)(I A) IS DECLARATORY AND CURATIVE AND IT HAS RETROSPECTIVE EFFECT FROM 01.04 .2005. FURTHER THE HONBLE AGRA BENCH OF ITAT IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL. CIT REPORTED IN 149 ITD 363 HELD AS UNDER:- SECOND PROVISO ASSESSMENT YEAR 2006-07 WHETHER INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) WITH EFFECT FRO M 01.04.2013 IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFF ECT FROM 01.04.2005, BEING DATE FROM WHICH SUB-CLAUSE (IA) OF SECTION 40(A) WA S INSERTED BY FINANCE (NO. 2) ACT, 2004 HELD, YES. SINCE, THE PROVISO INSERTED IN SECTION 40A(IA) W.E. F. 01.07.2012 IS CURATIVE AND REMEDIAL IN NATURE AS IT GOES WITH THE SPIRIT OF THE GOVERNMENT THAT NO DOUBLE TAX SHOULD BE CHARGED ON SAME INCOME AND HENCE THE SAME IS APPLICABLE RETROSPECTIVELY W.E.F. ASSTT. YEAR 2005- 06 WHEN THE SUB SECTION (IA) WAS INSERTED IN SECTION 40(A) OF THE INCOME TAX ACT , 1961. SUCH VIEW HAS BEEN UPHELD BY THE HON`BLE SUPREME COURT IN THE CASES OF GOODYEAR INDIA LTD. V/S STATE OF HARYANA AND ANR. (188 ITR 402), ALLIED MOT ORS PVT. LTD. V/S CIT (224 ITR 677) AND R.B. JODHAMLA KUTHIALA V/S CIT (8 2 ITR 570) . THEREFORE THE SAID PROVISO MAY KINDLY BE TAKEN TO BE APPLICAB LE FOR THE YEAR UNDER CONSIDERATION ALSO AND THE DISALLOWANCE SO MADE MAY KINDLY BE DELETED AS THE APPELLANT HAS OBTAINED A PROOF THAT THE RECIPIENT H AS PAID TAX ON THE INTEREST PAID BY THE ASSESSEE AND DULY SUBMITTED BEFORE THE HONBLE BENCH.. 5.4 THE LD. DR RELIED ON THE ORDER OF THE AUTHORITI ES BELOW. 5.5 I HAVE HEARD THE RIVAL CONTENTION AND PERUSED T HE MATERIAL AVAILABLE ON RECORD. IT IS NOTED FROM THE RECORD THAT THE TA X WAS NOT DEDUCTED ON THE PAYMENT OF INTEREST HOWEVER THE ASSESSEE HAS SUBMIT TED THE CERTIFICATE IN ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 19 FORM 26A DULY SIGNED BY A CHARTERED ACCOUNTANT STAT ING THAT THE DUE TAX ON SUCH INTEREST HAS BEEN PAID BY THE RECIPIENT. TH E FINANCE ACT, 2012 HAS MADE AN AMENDMENT IN SECTION 40(A)(IA) THROUGH WHIC H A PROVISO WAS INSERTED W.E.F. 01.04.2013 WHEREIN IT HAS BEEN CLEA RED THAT THE RECIPIENT HAS PAID THE TAX AND ASSESSEE IS NOT DEEMED TO BE I N DEFAULT UNDER THE FIRST PROVISO TO SUB SECTION 1 OF SECTION 2001 THEN FOR T HE PURPOSE OF SECTION 40(A)(IA) IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID TAX ON SUCH SUM SUBJECT TO FURNISHING ON THE CERTIFICATE B Y THE CHARTERED ACCOUNTANT. THOUGH THIS AMENDMENT HAS BEEN MADE W.E .F. 01.04.2013 YET THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ANSAL LANDMARK TOWNSHIP PVT. LTD. 377 ITR 635 HAS HELD THAT AMENDM ENT HAS DECLARATORY AND CURATIVE IN NATURE AND HAS RETROSPECTIVE EFFECT W.E.F. 01.04.2005. THIS VIEW HAS ALSO BEEN TAKEN BY THE AGRA BENCH OF ITAT IN THE CASE OF RAJEEV KUMAR AGARWAL VS. ADDL. CIT 149 ITD 363. RES PECTFULLY FOLLOWING THE ORDERS OF HONBLE DELHI HIGH COURT AN D AGRA BENCH OF ITAT (SUPRA) , I AM OF THE VIEW THAT NO DEDUCTION C OULD BE MADE U/S 40(A)(IA) IF THE ASSESSEE IS NOT DECLARED AS ASSESS EE IN DEFAULT U/S 201(1) FOR WHICH THE NECESSARY CERTIFICATE IS CLAIMED TO H AVE BEEN FURNISHED BEFORE THE LOWER AUTHORITIES. I THEREFORE DIRECT TH E AO TO VERIFY THIS FACT AND IF THE CLAIM OF THE ASSESSEE IS FOUND CORRECT, NO DISALLOWANCE BE MADE ITA NO. 56/JP/2016 SMT. PREM LATA GUPTA VS. ACIT (OSD), RANGE-7, JAIPU R 20 ON THIS ACCOUNT. HENCE GROUND NO. 4 OF THE ASSESSE E IS SET ASIDE TO THE FILE OF THE AO FOR MAKING NECESSARY VERIFICATION AN D THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 6.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 15 /11 /2016. SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 15 /11/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SMT. PREM LATA GUPTA, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, (OSD), RANGE-7JAIPUR 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 56/JP/2016) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR